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Oil price is driven up by politics, not speculators says ICE chief

Oil price is driven up by politics, not speculators says ICE chief

By Graham Ruddick

Last Updated: 7:09pm BST 15/07/2008



Sir Bob Reid, head of the Brent Oil trading market in London, says the increase in oil prices is being driven by global political problems not speculators, and warned that the boom is set to continue.

The chairman of ICE Futures Europe was giving evidence to the Treasury Committee in Westminster about the regulation of the oil market and the dramatic rise in the price of oil to more than $140 a barrel.

He also dismissed US concerns about the “London loophole” – a fear that gaps in regulation have led to excessive speculation or manipulation in the UK oil market – saying that monitoring of the market was more like a “reef knot”.

According to Sir Bob, the price of oil is being driven by “unbelievable” political tensions in Nigeria, Iran, Russia and Brazil at a time when the balance between supply and demand is “very tight”.

“Every day you have opened the paper in the last few months there seems to be something else that suggests it is going to draw oil from this balanced equation,” he said.

“This has been an unusually difficult time. Will it ease off? I think you’ve got to look at each of those political situations and ask yourself, ‘Is that likely to be solved?’ Unfortunately, it’s not very promising.”

Sir Bob denied that speculators were a key factor behind the oil price boom, saying that market abuses were non-existent in the UK.

“This market is orderly – there is no absence of information, no sign of manipulation or activity of that nature that could constitute market abuse,” he said.

The US Congress has brought up concerns that the ICE Futures market is not as closely regulated by the Financial Services Authority (FSA) as the US watchdog, the Commodity Futures Trading Commission (CFTC), controls American traders.

However, Sir Bob shrugged off these fears and said he was relaxed about CFTC plans to introduce new regulation on speculation into the UK.

“London is regulated not as a loophole but as a reef knot, with the FSA pulling one part of the rope and the CFTC pulling the other.

It is a very tight knot,” Sir Bob said.

The FSA, which also gave evidence to the committee, supported the views of ICE Futures Europe despite tough questioning led by Labour MP John McFall, chairman of the committee.

Alexander Justham, the director of the markets division, said: “ICE has over 23 people daily monitoring the activity; we receive that data on a daily basis.”

Dr Steven Fries, the chief economist at Shell, said that “underlying economic fundamentals” on supply and demand were the key factors.

The industry was aiming for “significant expansion” over the next two years to boost production, he added.

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